In general,an externality is created when
A) people are affected (other than by price) by a transaction which they were not part of.
B) firms produce a product of low quality and consumers don't like it.
C) firms have to pay for polluting the environment.
D) the government subsidizes education.

Question

Quizplus · Accepted Answer

An externality occurs when the actions of one person or entity affect the well-being of another person or entity, even though these effects are not reflected in market prices. So, if people are affected (other than by price) by a transaction which they were not part of, it creates an externality. The other choices do not accurately describe the creation of an externality.

In General,an Externality Is Created When